December 31, 2013 Midterm- Netflix 1. How strong are the competitive forces in the movie rental marketplace? Do a five-forces analysis to support your answer. The competitive forces in the movie rental marketplace are extremely strong and hard for business to keep up with other competitors in the movie marketplace. With many other movie rental businesses in the market, it can make it harder for a business to keep running its business.
Like pervious attempts to move away from VHS tapes, DVDs players were very costly at first. As time went on, DVD’s players became cheaper to produce and many of them where incorporated with home theater systems due to the demand of people who wanted to watch movies on their own big screen. With this boom in DVDs’ it created a demand in the movie rental marketplace. Since Blockbuster was apart of Viacom, which was a multimedia conglomerate, they were able to provide them with supplier power and buyer power. Blockbuster was able to outspend the competition, which in turn created Barriers to Entry for Rival video stores.
This is apparent by the inconsistency in the numbers of Netflix’s customer base. If there is something new that comes out that is more convenient to use, with a cheaper price, customers are going to be more likely to switch to the other option. Buyers – Customers have high buying power because of the many different options that are available to them when acquiring access to a movie. Suppliers – Supplier power is high because they are the ones who determine the timing of when a movie becomes available and set the costs of the movies. Substitutes – Substitutes are a strong force for the company because of all the competitors within the industry.
Also the low switching cost and consumer awareness of shopping around to find the best bargains increased competition around stores to capture customers. Corporate stakes were high for Wal-Mart, this can be seen in its earlier years (Ben Franklin stores) where they were losing
1. Threat of New Entrants: Because firms like Blockbuster and Redbox are so well known and have a reputable name, I think the threat of new entrants is fairly low. Not to mention, the increasing trend toward subscriptions, internet streaming, and video on demand will most definitely prevent more movie rental firms from entering the marketplace. Threat of Substitute Products: The threat of substitute products is relatively high in the movie rental marketplace as a whole. With firms like Netflix, there is an increasing amount of consumers who pay for a subscription and can stream movies directly to their TV, computer, tablet, or even cell phone.
There are many things to consider when entering a competitive industry. Porter’s five forces model helps answer many of the questions that one might be faced with in trying to make a determination. In this example, I will use Porter’s five forces model to evaluate the attractiveness of entering the movie rental business. The first of the five forces that is outlined is buyer power. Buyer power is high when the consumer has several choices to choose from, and is low when there are limited options.
These lead firms to use whatever resource they have as weapon to gain competitive advantage. If you at the rivalry in the online DVD rental industry, you see that it is high. Rivals in this industry carry a feebly differentiated product, which intensifies threats from rivals. In this industry, the cost to switch or change suppliers is very low; making it easier for consumers to have less brand loyalty. They can switch wherever there is a lower cost being offered.
3. Threat of Rivalry Personal Computers and the music/audio market are Apple’s two main areas of competition. Their leading competitors are Dell, HP, and Microsoft. Personal computers are quite popular today and with so many choices, the sales price of the computers need to be lowered to a competitive price which can, again, lead to a loss in profit. However Apple has, because of their easy to use and widely available, fair priced iPod(s), cornered the music market.
Netflix could carry a much larger quantity and diversity across genders and at the same time Blockbuster was constrained by physical limitations imposed by its bricks-and-mortar stores, generally limited its selection to mainstream titles. Furthermore, Blockbuster made very big inconvenience for the customers who wanted to keep the movies longer time (because it limited rentals from one to five days). Moreover, customers had to pay additional amount of money (a fee) if they returned a video late. Blockbuster’s pricing model meant the customers had to pay each time they rented a video, while Netflix charged a flat subscription and were allowed to rent one to five DVDs at one time with no limit on how many could be rented in a month or no due date. Therefore, Netflix’s pricing schemes gave customers a greater flexibility comparing with Blockbuster’s pricing which was not so attractive for current customers.